Sunday, April 21, 2013

KC-46 Behind the GAO Scene

Warning this may turn into a long read for those who need to know what's happening to the KC-46 program from the long and short through GAO's pair of glasses.

First GAO said some good things about the program and Headlined as follows:

Program Generally 
Stable but 
Improvements in 
Managing Schedule 
Are Needed

Full GAO Report With This 2012 Link


Figure 2: KC-46 Development Contract Management Reserves Allocation Trend (December 2012)

Note: Reporting of contract cost performance data including the allocation of management reserves started in May 2011.

The quick rate of depletion of Boeing’s management reserves raises concerns. Two years into a 7-year development program, the contractor has already allocated about 80 percent of the total available. Less than $72 million is available for future contingencies related to the more than $3.5 billion in government funded contract work remaining. DOD anticipates this negative trend will continue, since Boeing has told them design and technical issues driving the allocation of management reserves are not fully resolved.

At the current allocation rate, our analysis shows that management reserves will be depleted in May 2013, prior to the critical design review in July 2013 and more than 4 years before the contractually required delivery date for 18 operationally ready KC-46 aircraft in August 2017.

Page 11 GAO-13-258 KC-46 Tanker Aircraft

According to GAO’s Cost Estimating and Assessment Guide, significant use of management reserves early in a program may indicate contract performance problems and decreases the amount of reserves available
for future risks, particularly during the test and evaluation phase when demand may be the greatest.9

At the current rate, none of the reserves will be available to complete the bulk of development work, as well as the entire period of development testing. Even though Boeing is contractually liable for all costs above the $4.9 billion ceiling price, unanticipated design changes, deficiencies discovered in testing, and other risks encountered that might require management reserves funding could place added pressures on cost and schedule as the development program moves forward. The program has not yet evaluated how the significant use of these funds early in development could impact future milestones.
LnD Note:
Boeing runs out of management contingency money before design review in July. No worries, changes were made outside management's control since 2011 that ate money up so money will be found to continue the Management Contingency Account.
Conclusions: Typically these type of statements are the summary overview of what an audit or review finds and states in a conclusive report. It is neither leaning towards good results or bad but is the result of its attribute testing and results. These are Blue conclusions from findings, before a review focuses on the root problems or achievements.

GAO Conclusions for this segment of the Review: (Or observations in summary)

"Entering its third year, the KC-46 development program is, for the most part, progressing as planned even though some concerns exist. The program has an ambitious schedule, particularly with regard to flight testing. While program estimates are essentially unchanged, the development contract cost estimate continues to be above the contract ceiling price, making it essential the government not change KC-46 requirements.

 Boeing has also allocated management reserves at a high rate which raises concerns because doing so early in a program is often an indicator of future contract performance problems. While the fixed price development contract caps the government’s cost liability, it would still behoove the Air Force to fully understand the causal factors driving the accelerated use of management reserves in order to recognize risks, consider potential trade-offs, and better understand circumstances that could impact on-time delivery to the warfighter. 

Also, improvements to a few aspects of the program’s master schedule could make it more 
complete and robust to further help ensure program success."

Recommendations For Executive Action:

We are recommending that the Secretary of Defense take the following two actions on the KC-46 program.

(Recommendations are always a My Own Red Ticket Part of any review, where Boeing and DOD expects to render a concurrence, and must follow up with immediate action for meeting the recommendation. I was a Governmental Auditor Supervisor and was pleased to offer recommendations as in summary statements for a program where deficiencies are found from the review. Hence the Red colored font.)

• "To help understand and monitor the causes of the majority of contractor management reserves being allocated two years into development, the Secretary of Defense should direct the Air Force, after Boeing has fully resolved the relevant design and technical issues, to analyze the root causes for the rate of expenditure of reserves in order to help the Air Force fully recognize and mitigate risk areas."

• "To help maintain a more thorough and insightful KC-46 development schedule, the Secretary of Defense should direct the Air Force to address our concerns related to three schedule best practices (capturing all activities, sequencing all activities, and conducting a schedule risk analysis), where we concluded the program’s master schedule had only partially met best practice criteria."

Now my take on this is an interesting read from end of December 2012, is the KC-46 program has had to scramble management issues with additional resources applied to the changes found during start-up of the project. Contingency money set aside, is used to resolve the changes in program imposed by both Boeing and the DOD. The Budget had about X so many millions set aside to met these DOD changes as the program unfolded, and then the DOD weighed in on what it needed. As Boeing has done for its compliance to DOD they spent the pot by December 2012 and by May it will zero out of money through allocations of its funds for DOD program change management and Boeing's project changes.  Everything else is on track with the KC-46 but its Costing Boeing by eating into the 4.89 Billion dollar total they cannot exceed. What remains to be decided is what the DOD has required outside the original contract amount should not count against the Boeing expenditures. Boeing may have some reimbursement coming as it did accomplish items outside the contract under DOD requests. No one seems alarmed at this point about the depletion of the account so I would assume Boeing understands as well as the DOD where monies will come from to support the contingency program fund as it readies for the July 2013 bench mark on the KC-46.

Other than that I look forward to the next GAO at the end of 2013. They will do this oversight effort through 2015 unless directed with a continuance order until the aircraft does not pass the next couple of benchmarks.

About best the practices fix, that is probably complete and running, as a checklist item under the category of "We Concur", and so forth, with an implementation of covering the best practices gap as found, "partial completion" recommendation, with a stamp "completed report" to the GAO. That item is one Boeing would have liked to skate by, and now they had to address it sooner rather than later. GAO will revisit these check items in the next cycle. I believe the KC-46 program is doing well over-all, until it first flies and then Boeing and DOD will be very busy tweaking the program with all the current unseen issues that appear when it flies.